Insight Invesco Bond Income Plus (BIPS) Q3 2026: Navigating Rising Yields During Market Uncertainty

Invesco Bond Income Plus Q3 at a glance: 

The impact of the conflict in the Middle East continues to reverberate around government bond markets, which saw significant price movements in the third quarter. Government bonds lost value, as rising inflationary pressures and increasing nervousness around government debt levels saw investors demand higher compensation to buy them.

 Key takeaways this quarter:

• As conflict resumed in the Middle East, and higher oil prices created greater inflationary pressure, government bonds came under pressure
• The premium for bonds issued by companies over government bonds remained low with strong earnings suggesting resilience in the corporate sector.
• Higher borrowing costs may ultimately start to weigh on companies’ earnings and profitability.

How have fixed income markets performed in the third quarter of 2026?

Government bond markets had a difficult quarter. The problems started among bonds with a longer time to maturity, as investors started to grow nervous about the US Federal Reserve’s commitment to tackling inflation. Persistently high inflation data in the US, coupled with a bumper jobs report in August^[1] raised the prospect of short-term interest rate rises, pushing up yields for short-dated bonds towards the end of the quarter. For bonds, yields move inversely to prices, so prices fell.

Over the three month period, the yield on the 30 year US government bonds had risen from 4.9% to 5.6%^[2]. US treasury secretary Scott Bessent was sufficiently concerned to intervene, buying back $6bn in government debt to try and push down the yield^[3]. Short-dated bond yields were also significantly

higher, rising from 4.16% at the start of July to 4.9% at the end of September^[4] as investors started to price in a rise in interest rates at the US Federal Reserve meeting.

Similar moves could be seen in bond markets around the world and there are concerns that this represents a full-scale reassessment of the fiscal risks for many developed economies. It is possible that bond yields could continue to move higher from here. There is a supply and demand imbalance. There are high levels of government debt available as governments seek to borrow more. This means bond investors can be more discerning about where they take risk and may demand higher yields

For the time being, the concerns on government bond borrowing have not been felt in the corporate bond market. The premium paid for corporate bonds over government bonds has remained steady, suggesting investors are less worried about the strength of the corporate sector. Indebtedness remains low in aggregate, and the recent earnings season was strong^[5].  

How has Q3 performance affected BIPS investors?

We remain confident in the creditworthiness of the companies whose bonds we hold. We do not see structural problems in the corporate sector, where balance sheets remain strong.

Nevertheless, the problems in government bond markets have had a knock-on impact on corporate bond prices and there are longer-term risks. Government bond yields set borrowing costs and it is possible that these higher costs eventually start to weigh on companies’ earnings and profitability. The war in the Middle East is creating disruption to supply chains, pushing up energy costs and weakening household budgets, which could also see some companies struggle.

Also, the market is relatively expensive, and prices leave little margin for error. The BIPS portfolio remains defensively positioned, with higher weightings in higher quality (investment grade) bonds over other parts of the market. Nevertheless, in our view, the yields now available from the market are attractive, which is helpful for the income generation objectives of the trust. 

How has Invesco Bond Income Plus (BIPS) sought to mitigate investment risk in Q3?

The BIPS portfolio has been defensively positioned, focusing on higher quality corporate bonds. Careful credit analysis remains the lodestar of our investment process. The team looks to build an in-depth understanding of the companies whose debt we hold, and the risks they may be facing. We are careful on valuations and seek to be properly compensated for those risks. The trust is globally diversified and incorporates a range of sectors and issuers. 

Perspective

Risks are mounting for the global economy. The conflict in the Middle East appears intractable, with knock-on effects for commodities pricing and availability. This is creating inflationary pressures and creating pressures in the government bond market. While the corporate sector has some bandwidth to resist these pressures, it cannot remain immune indefinitely. This is why the trust remains cautiously positioned.

However, it is also worth noting that the yields on fixed income are now high relative to recent history, and there are opportunities for careful investors.  The Invesco Bond Income Plus (BIPS)

portfolio aims to obtain capital growth and high income from investment, predominantly in high-yielding fixed-interest securities. Higher yields give the managers more choice in seeking to deliver that target. 

Invesco Bond Income Plus Limited

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